Thinking beyond pay to keep your star employees

August 10, 2011: 10:26 AM ET

For many companies, using salary to compete for top talent is often a losing battle. But talented employees often look for several other qualities in jobs when deciding whether to make a move.

By Ethan Rouen, contributor

Scott Belsky, Behance's CEO, and Matias Corea, co-founder and chief designer

Scott Belsky, Behance's CEO, and Matias Corea, co-founder and chief designer

FORTUNE -- The team at Scott Belsky's company, Behance, is made up of people he calls "long-term greedy instead of short-term greedy."

They understand that the fast-growing business, which serves as a web platform for creative professionals to showcase their work, often requires its employees to blend their work and personal lives and to think about work beyond normal business hours.

Behance staffers also understand, Belsky says, that it's not the type of company where they can walk into the boss's office to demand a raise, and where pay decisions often come down to paying staff more or hiring more people to manage the company's growth, which currently receives around 50 million page views a month.

"We believe that you should be paying people as much as you can," says Belsky, who co-founded Behance five years ago and serves as CEO. "As a small company, we can have true transparency. Everyone knows what is being made and what is being spent. No one is going to come up and say, 'I want more.'"

Even though the unemployment rate is at a stubborn 9.1%, many companies, aware of the challenges and costs of replacing employees, are dishing out annual raises to keep their best performers. A recent study by human resources consulting firm Mercer found that on average, companies will increase their best employees' salaries by 4.6% this year.

But for small businesses with tight salary budgets, using pay to keep top talent from going to larger rivals is often a losing battle.

"Raises increase your fixed costs, which can be a challenge for smaller companies," says Catherine Hartmann, one of the principals at Mercer who oversaw the study. But "in small businesses in particular, the loss of a top performer has a much more significant impact on the bottom line."

When a company can't throw cash at its best employees, Hartmann suggests, managers should instead lavish their stars with a promising future and have frank conversations with workers about how to keep them motivated and what skills they would like to develop to make them more valuable in the job market.

While making employees more desirable to competitors may seem counterintuitive, there is ample evidence that salary is just one part of the toolkit managers need to retain their best and brightest, says Heidi K. Gardner, a professor of organizational behavior at Harvard Business School who has published case studies examining the effects of pay on retaining employees.

"Pay matters not just because people need a paycheck, but because pay is a point of perceived fairness," she says.

Fairness is what matters most, and successful businesses think creatively about how to show that everyone is treated fairly. Pay raises for the best performers is an obvious way to show that hard work is rewarded, but there are less tangible ways that people can measure their own success and accomplishments.

"What people really want beyond being paid enough and being paid fairly is meaningful work," Gardner says. "The more volatile the world is, the more people are turning inward to seek a sense of purpose and meaning in their work."

Offering training is one way to sate this desire, but so are other rewards, like logistical and intellectual autonomy, Gardner says. "Time is probably the most precious resource."

Logistical autonomy can simply come in the form of an employer offering workers more flexibility in their schedules so they can catch their children's soccer games.

Intellectual autonomy, on the other hand, is more nebulous and is exemplified by companies like Google, which lets its employees set aside a significant portion of their work week to think about their jobs, their company, and how they can improve both.

Gardner also pointed to herself and other business school professors as evidence that this kind of freedom can matter more than money. Many business school professors leave lucrative private-sector positions behind to spend five years or more in graduate school, only to be followed by starting lower-paying academic jobs. But these professors won the freedom to research what they are passionate about in return.

Finally, one of the best and most cost-effective ways to let employees know they are valued is to tell them. Gardner says that working with employees to develop plans and set goals, then giving them constructive feedback along the way, can create a sense of attachment that money can't buy.

"Good management is not free, but it's pretty cost effective compared to handing out cash, which doesn't buy anyone's loyalty for very long," she says.

When Belsky discusses transparency at Behance as a tool to retain employees, he's not just talking about sharing the details of the company's income statement. He works with every employee to set goals and develop new skills. True, the "long-term greedy" quality he refers to is about the financial success of the company, but it is also about giving each employee the chance to play a role in building the business.

"In tough times, when businesses are trying to keep a team engaged with projects, transparency is key; setting goals and milestones together is vital," Belsky says. "The experience that we are gaining together, it should augment pay."

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